EX-99 2 g04219exv99.htm EX-99 PRESS RELEASE 11/09/06 EX-99 PRESS RELEASE 11/09/06
 

EXHIBIT 99
     
Press Release
  Source: First Acceptance Corporation
 
  Contact: Michael Bodayle (615) 844-2885
First Acceptance Corporation Reports First Quarter Financial Results
NASHVILLE, TN, November 9, 2006 /Businesswire-FirstCall/ — First Acceptance Corporation (NYSE: FAC) today reported its financial results for the first quarter ended September 30, 2006 of its fiscal year ending June 30, 2007.
     Total revenues for the three months ended September 30, 2006 increased 57% to $79.1 million, from $50.3 million in the same period last year. Net income for the three months ended September 30, 2006 was $1.5 million, or $0.03 per share on a fully-diluted basis, compared with net income of $3.7 million, or $0.08 per share on a fully-diluted basis, for the same period of fiscal 2006. Net income for the current quarter was adversely impacted by the development of loss and loss adjustment expense reserves for prior accident quarters of approximately $3.7 million on a pre-tax basis.
Premium Growth
     Premiums earned increased by $24.7 million, or 57%, to $67.4 million for the three months ended September 30, 2006, from $42.8 million for the three months ended September 30, 2005. The increase was due primarily to the development of additional retail locations. Approximately 80% of the premium growth was in Florida and Texas, where the Company opened 81 locations in fiscal year 2006, and Chicago, where the Company acquired 72 locations in January 2006. The total number of insured policies in force at September 30, 2006 increased 73% over the same date in 2005 from 125,799 to 217,308. At September 30, 2006, the Company operated 466 retail locations (or “stores”) compared with 310 stores at September 30, 2005.
Loss and Loss Adjustment Expense Ratio
     The loss and loss adjustment expense ratio was 77.8% for the three months ended September 30, 2006 compared with 66.6% for the three months ended September 30, 2005. During the three months ended September 30, 2006, loss and loss adjustment expense reserves for prior accident quarters developed adversely by approximately $3.7 million and accounted for 5.5% of the ratio for the current quarter. Of these amounts, $2.5 million, or 3.7%, related to liability coverages and $1.2 million, or 1.8%, related to physical damage coverages. The adverse development related primarily to the estimation of the severity of losses in Florida and Texas, where the Company had significant growth during 2006 and Georgia where the Company reduced its physical damage premium rates effective January 23, 2006. The Company has or will be taking action to modify premium rates in these states. Excluding the adverse development for prior accident quarters, the loss and loss adjustment expense ratio for the current quarter was 72.3% compared with 66.6% for the same quarter last year. This increase in the ratio for the current accident quarter was the result of three factors: anticipated higher loss ratios in Florida and Texas; an increase in the loss adjustment expense ratio (primarily as a result of a planned increase in claims department staffing as a result of recent and future growth); and an increase in the loss ratio in other states.

 

 

Expense and Combined Ratio
     The expense ratio decreased from 20.6% for the three months ended September 30, 2005 to 18.6% for the three months ended September 30, 2006. This decrease is primarily the result of the increase in premiums earned from new stores without a corresponding increase in their fixed operating costs (advertising, rent and base compensation of our employee-agents). The combined ratio increased to 96.4% for the three months ended September 30, 2006 from 87.2% for the three months ended September 30, 2005 due to the factors previously discussed.
About First Acceptance Corporation
     First Acceptance Corporation provides non-standard private passenger automobile insurance, primarily through employee-agents. As for September 30, 2006, the Company leased and operated 466 retail offices in 12 states. The Company’s insurance company subsidiaries are licensed to do business in 25 states.
     This press release contains forward-looking statements. These statements, which have been included in reliance on the “safe harbor” provisions of the federal securities laws, involve risks and uncertainties. Investors are hereby cautioned that these statements may be affected by important factors, including, among others, the factors set forth in the Company’s Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission. Actual operations and results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

2

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
($000s EXCEPT PER SHARE DATA)
(Unaudited)
                 
    Three Months Ended  
    September 30,  
    2006     2005  
Revenues:
                
Premiums earned
   $ 67,421     $ 42,754  
Fee income
     9,212       6,405  
Transaction service fee
     575       —  
Investment income
     1,947       1,099  
Losses on sales of investments
     (53 )     —  
 
            
 
     79,102       50,258  
 
            
Costs and expenses:
                
Losses and loss adjustment expenses
     52,420       28,491  
Insurance operating expenses
     22,329       15,223  
Other operating expenses
     1,108       613  
Stock-based compensation
     104       84  
Depreciation and amortization
     393       214  
Interest expense
     412       —  
 
            
 
     76,766       44,625  
 
            
Income before income taxes
     2,336       5,633  
Income tax expense
     843       1,920  
 
            
Net income
   $ 1,493     $ 3,713  
 
            
Net income per share, basic and diluted
   $ 0.03     $ 0.08  
 
            
Number of shares use to calculate net income per share:
                
Basic
     47,545       47,455  
 
            
Diluted
     49,663       49,465  
 
            

3

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations — By Business Segment
($000s EXCEPT PER SHARE DATA)
(Unaudited)
INSURANCE OPERATIONS
                 
    Three Months Ended  
    September 30,  
    2006     2005  
Revenues:
                
Premiums earned
   $ 67,421     $ 42,754  
Fee income
     9,212       6,405  
Transaction service fee
     575       —  
Investment income
     1,859       887  
Losses on sales of investments
     (53 )     —  
 
            
 
     79,014       50,046  
 
            
Costs and expenses:
                
Losses and loss adjustment expenses.
     52,420       28,491  
Operating expenses
     22,329       15,223  
Depreciation and amortization
     393       214  
 
            
 
     75,142       43,928  
 
            
Income before income taxes
   $ 3,872     $ 6,118  
 
            
REAL ESTATE AND CORPORATE(1)
                 
    Three Months Ended  
    September 30,  
    2006     2005  
Revenues:
                
Investment income
   $ 88     $ 212  
 
            
 
     88       212  
 
            
Costs and expenses:
                
Operating expenses
     1,108       613  
Stock-based compensation
     104       84  
Interest expense
     412       —  
 
            
 
     1,624       697  
 
            
Loss before income taxes
   $ (1,536 )   $ (485 )
 
            
(1)   Includes activities related to disposing of foreclosed real estate held for sale, interest expense associated with debt, and general corporate overhead.

4

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
($000s EXCEPT PER SHARE DATA)
(Unaudited)
                 
    September 30     June 30,  
    2006     2006  
ASSETS
                
Fixed maturities, available-for-sale, at market value
   $ 141,052     $ 127,828  
Cash and cash equivalents
     27,266       31,534  
Premiums and fees receivable
     72,320       64,074  
Reinsurance recoverables
     1,063       1,344  
Deferred tax asset
     47,405       48,068  
Other assets
     11,521       12,171  
Foreclosed real estate held for sale
     128       87  
Deferred acquisition costs
     6,057       5,330  
Goodwill and identifiable intangible assets
     143,766       143,870  
 
            
TOTAL
   $ 450,578     $ 434,306  
 
            
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Loss and loss adjustment expense reserves
     70,534       62,822  
Unearned premiums
     85,979       76,117  
Notes payable and capitalized lease obligations
     22,813       24,026  
Other liabilities
     12,370       17,918  
 
            
Total liabilities
     191,696       180,883  
Total stockholders’ equity
     258,882       253,423  
 
            
TOTAL
   $ 450,578     $ 434,306  
 
            
Book value per share
   $ 5.44     $ 5.33  

5

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data
($000s EXCEPT PER SHARE DATA)
(Unaudited)
GROSS PREMIUMS EARNED BY STATE
                 
    Three Months Ended  
    September 30,  
    2006     2005  
Gross premiums earned:
                
Georgia
   $ 17,190     $ 17,316  
Florida
     12,229       2,589  
Alabama
     7,289       6,930  
Texas
     6,661       2,459  
Illinois
     6,637       122  
Tennessee
     5,947       6,331  
Ohio
     3,862       3,300  
Indiana
     1,937       1,161  
South Carolina
     1,822       —  
Missouri
     1,430       1,234  
Mississippi
     1,231       1,211  
Pennsylvania
     1,186       125  
 
            
Total gross premiums earned
     67,421       42,778  
Premiums ceded
     —       (24 )
 
            
Total net premiums earned
   $ 67,421     $ 42,754  
 
            
GAAP COMBINED RATIOS (INSURANCE COMPANIES)
                 
    Three Months Ended  
    September 30,  
    2006     2005  
Loss and loss adjustment expense
     77.8 %     66.6 %
Expense(1)
     18.6 %     20.6 %
 
            
Combined
     96.4 %     87.2 %
 
            
(1)   Insurance operating expenses are reduced by fee income from insureds and the transaction service fee received from the Chicago agencies whose business we acquired.
POLICIES IN FORCE
                 
    Three Months Ended  
    September 30,  
    2006     2005  
Policies in force — beginning of period
     200,401       119,422  
Net increase during period
     16,907       6,377  
 
            
Policies in force — end of period
     217,308       125,799  
 
            

6

 

FIRST ACCEPTANCE CORPORATION AND SUBSIDIARIES
Supplemental Data (continued)
(Unaudited)
NUMBER OF RETAIL LOCATIONS
     Retail location counts are based upon the date that a location commenced writing business. At September 30, 2005, we had previously reported this information based upon the date that a location was leased. Count information for all prior periods presented has been restated to conform to the current period’s method of presentation.
                 
    Three Months Ended  
    September 30,  
    2006     2005  
Retail locations — beginning of period
     460       248  
Opened
     9       63  
Closed
     (3 )     (1 )
 
            
Retail locations — end of period
     466       310  
 
            
     The following table shows the number of our retail locations by state and the change from the preceding quarter end.
                                                 
                                    Change in Locations  
                                    Three Months Ended  
    September 30,     June 30,     September 30,  
    2006     2005     2006     2005     2006     2005  
Alabama
     25       25       25       25       —       —  
Florida
     40       25       39       20       1       5  
Georgia
     63       63       63       62       —       1  
Illinois
     85       13       86       5       (1 )     8  
Indiana
     26       21       26       21       —       —  
Mississippi
     8       8       8       8       —       —  
Missouri
     17       17       18       14       (1 )     3  
Ohio
     30       29       30       29       —       —  
Pennsylvania
     25       15       25       7       —       8  
South Carolina
     26       —       21       —       5       —  
Tennessee
     21       20       20       20       1       —  
Texas
     100       74       99       37       1       37  
 
                                    
Total
     466       310       460       248       6       62  
 
                                    

7